Conceptual Framework and Accounting Standards
Revalued Amount – the asset’s fair value at
Overview
Accounting is the process of identifying, measuring,
and communicating economic information to permit
informed judgment and decisions by users of
information. By AAA ( American Association of
Accountants)
Three important activities in the definition of
accounting:
 Identifying – The process of analyzing
events whether or not they will be
recognized in the book.
 Measuring – involves assigning numbers
normally in monetary terms.
 Communicating – process of transforming
economic data into useful accounting
information, ex. Financial statements.
Types of events:
External Events – events which involve an entity
and external party.
1. Exchange or Reciprocal Transfer – giving
and receiving.
2. Non-reciprocal – one way transaction
3. External Event other than transfer –
changes in economic resources or
obligation of entity caused by an external
party, does not involve transfers.
Internal Events – events which do not involve an
external party.
1. Production – resources are transformed into
finished goods.
2. Casualty – unanticipated/unexpected loss
from disasters.
Measurement Bases
1. Historical Cost – price based on past
exchange.
2. Current Cost – price based on current
exchange.
3. Realizable (Settlement Value) – net cash
obtained by selling the asset for disposal.
4. Present Value – price based on future
exchange.
5. Fair Value – the price that would be
received to sell an asset or paid transfer to
a liability, transaction between market
participant.
6.
the date of the revaluation less any
subsequent accumulated depreciation,
impairment losses.
7. Inflation/ adjusted costs – amounts adjusted
to the measuring unit current at the
reporting date.
Basic Purpose of Accounting
- To provide information about economic
activities intended to be useful in making
economic decisions.
Types of Accounting Information classified as to
user’s needs.
1. General purpose accounting information –
common needs, of most statement users.
By PFRS (public)
2. Special purpose accounting information –
specific needs, of particular users. (private)
Basic Accounting Concepts
1. Going Concern Assumption – the entity is
assumed to carry on its operations for an
indefinite period of time.
2. Separate Entity/ Entity Concept – the entity
is treated separately from its owners.
3. Stable Monetary Unit – amounts stated in
terms of a common unit of measure.
4. Time Period/ Periodicity Concept – life of
business is divided into series of reporting
periods.
5. Materiality Concept – information is material
if its omission or misstatement could
influence economic decisions.
6. Cost benefit/ Cost Constraint – the cost of
processing and communicating information.
Cost should not exceed to benefit.
7. Accrual basis of accounting -